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1Integrated Report and Financial Statements

Creating Sustainable Value

CPF Financial ServicesIntegrated Report & Financial Statements 2018


OUR VISIONFulfilling Lives

OUR MISSIONTo provide innovative retirement, Financial, in-frastructural and consulting solutions through

partnerships that safeguardthe interests of all stakeholders.

CORE VALUESTeam spirit

InnovativenessProfessionalism

IntegrityCustomer Focus


02 Vision & Mission03 Table of Contents04 Notice of the Annual General Meeting05 Directors and Professional Advisors06 CPF Financial Service at a Glance07 Our Purpose and Values08 Board fo Directors09 Message from the Chairperson12 Management Team13 Message from the the Group Managing Director/CEO16 Other Material Issues17 Creating Sustainable Value 21 Corporate Governance Statement26 Report of the Directors29 Statement of Directors Responsibility30 Independent Auditors’ Report34 Statements of Profit or Loss and other Comprehensive Income35 Statements of financial Position37 Statements of Change in Equity38 Statements of Cash Flows39 Notes to the Financial Statements

CONTENT


Notice of the Annual General Meeting

TO ALL SHAREHOLDERS

NOTICE is hereby given that the 5th Annual General Meeting of CPF Financial Services will be held at CPF House, 7th Floor, Haile Selassie Avenue, Nairobi on Tuesday, 28 May 2019 at 11.00 a.m. to transact the following ordinary business:-

1.To read the notice convening the meeting, table the proxies received and confirm the presence of a quorum;

2. To confirm and adopt the minutes of the Annual General Meeting held on 20th December 2018;

3. To receive the Chairman’s Statement and the Chief Executive’s Report;

4. To receive, consider and if thought fit, adopt the Audited Financial Statements for the year ended 31st December, 2018, together with the Director’s and Auditors reports therein;

5. To consider and if deemed fit approve the recommendation of the Board on the first and final dividend of Kshs 149.7 per share in respect of the Financial Year ended 31 December 2018;

6.To receive, consider and if thought fit approve the Director’s remuneration for the year ending 31st December, 2018;

7. Election of Directors

a) In accordance with Articles 115 and 116 of the Company’s Articles of Association, Mr. John Katiku retires by rotation and, having served for two terms of 3 years each, retires from the Board at the conclusion of the Annual General Meeting of 2019;

b) Having received a nomination letter from Laptrust and the subsequent recommendation by the Board, Ms. Matilda Chebet Kimetto be and is hereby appointed as a Board member for CPF Financial Services Limited effective the conclusion of this AGM;

8. To re-appoint Messrs. Deloitte & Touché as Auditors of the Company in accordance with the provisions of Section 721 (2) of the Companies Act, 2015 and to authorise the Directors to fix their remuneration for the ensuing financial year.

9. To discuss any other business of which due notice has been given.

BY ORDER OF THE BOARD

ISAAC K. MITEICOMPANY SECRETARYNAIROBI

Date: 07 MAY 2019


Dr Julius Kipngetich - ChairmanHosea Kili - Group Managing Director & CEOStephen LugaliaJohn KatikuCatherine NyambalaSahlan KeinanRosemary Ndiritu

DIRECTORS

Directors and Professional Advisors

Isaac MiteiCertified Public Secretary (Kenya)R/CPSB/2873P.O Box 28938, 00200Nairobi

SECRETARY

CPF House, 7th floorHaille Sellasie AvenueP O Box 28938, 00200Nairobi

REGISTERED OFFICE

Stanbic Bank LimitedHarambee Avenue BranchP O Box 72833, 00200Nairobi

BANKERSFamily Bank LimitedCPF HouseP.O Box 74145, 00200Nairobi

Deloitte & ToucheCertified Public Accountants (Kenya)Deloitte PlaceWaiyaki Way, MuthangariP O Box 40092, 00100Nairobi

AUDITORS

Hamilton Harrison and MathewsICEA BuildingKenyatta AvenueP O Box 30333, 00100Nairobi

ADVOCATESWekesa &Simiyu AdvocatesACK Garden House2nd Floor, Wing C1st Ngong AvenueP O Box 10299, 00100Nairobi

Kiplagat & Co. AdvocatesNSSF Building, 11th FloorBlock A, Eastern WingP O Box 3642, 00200Nairobi

5Intergrated Report and Financial Statements


CPF Financial Services at a Glance

CPF Financial Services Ltd (hereafter referred to as ‘the company’) was incorporated on 16th June 2011 and started operations on 1st January, 2012. The company is wholly owned by the Local Authorities Pension Trust, the Laptrust Umbrella Retirement Fund (County Pension Fund) and CPF Individual Pension Plan. It is a holding company, with subsidiary companies being Laser Infrastructure and Technology Solutions, Laser Property Services, and Laser Insurance Brokers. The company was set up with the primary objective of of-fering Scheme Administration, Training and Consultancy services.

As an investment of the CPF Group pension schemes, the company provides an avenue for investment in new ventures while enhancing corporate governance and strategic autonomy for the Group’s entities.

The company operates 9 regional offices across the republic of Kenya, and serves clientele from across the 47 Counties. CPF Financial Services has a staff contingent of 235 professionals drawn from a diverse areas of practice.

KisumuCentral Square Building, 2nd Flr,Oginga Odinga StreetP.O Box 7468-40100,,KisumuTel:+254-2046901-5M: +254-720 433 354Email: [email protected]

NyeriKaragu Annex, 2nd FlrTel: +254-2046901-5M: +254-720 433 354Email: [email protected]

GarissaImmigration House, Ground FlrTel:+254-2046901-5M: +254-720 433 354Email: [email protected]

EldoretZion Mall, 1st Flr, Uganda RdP.O Box 8805- EldoretTel:+254-2046901-5M: +254-720 433 354Email: [email protected]

BungomaNew Island Building, 1st FlrNext to the county Govt OfficeP.O Box 8805- EldoretTel:+254-2046901-5M: +254-720 433 354Email: [email protected]

MeruAmee Center, 1st flrOpposite Barclays Bank, MeruTel:+254-2046901-5M: +254-720 433 354Email: [email protected]

Head OfficeNairobiCPF House, 7th FlrHaile Selassie Avenue,P.O Box, 28938-00200 Nairobi,Tel: +254-20-46901-5 / 720-433354,Email: [email protected]

MombasaJubilee Arcade, Moi AvenueP.O Box 82429-80100, ,MombasaTel: +254-2046901-5M: +254-720 433 354Email: [email protected]

NakuruTamoh Plaza, 1st FlrNext to Prestige MallTel:+254-2046901-5M: +254-720 433 354Email: [email protected]


Our Purpose and Values

Our Brand PromiseThe essence of our brand is Fulfilling Lives.

Employee Retirement Benefits Solutions

Scheme Administration

Individual Pension Plans

Training & Consultancy

OUR FOOTPRINT

Transformational Leadership

Performance Management

EDMS & Paperless Office

Smart Caretaker

Effective Public Private Partnerships

Pre-Retirement Training

Block Chain

Training Programs

1. Laptrust Defined Benefits Scheme2. Laptrust Umbrella Retirement Fund (County Pension Fund) - DC Scheme3. Salih (A Shariah Compliant Sub-Fund of the DC Scheme)4. CPF Individual Pension Scheme5. Ewaso Ngiro Development Authority(ENSDA)

Schemes administered5

CPF Trust fund1


Board fo Directors

Dr Julius Kipngetich - Chairman Hosea Kili - Group Managing Director & CEO

Stephen Lugalia - Director

John Katiku - Director

Catherine Nyambala - Director Sahlan Keinan - Director

Rosemary Ndiritu - Director


Message from the Chairperson

As Chairman of the Board of CPF Financial Services, I am once again pleased to present the Group Intergrated Report and Accounts for the financial period ended 31 December, 2018.

The immensely significant decision by the Board to diversify into other revenue streams back in 2013 has led to improved performance and positive in-vestment returns across the group.

Overall, the strategy was aimed at ensuring that the company, as well as each subsidiary provide prod-ucts and services that bridge the needs gap within our areas of operations, enhance revenue genera-tion while at the same time building on the compe-tencies that the Group had identified.

I am happy to report that the subsidiary companies namely: Laser Property Services (LPS), Laser Insur-ance Brokers (LIB), Laser Infrastructure and Tech-nology Solutions (LITES); all of which were rolled-out to support revenue generation for CPF Financial Services, not only enabled us to expand into new markets with new product lines and services, but have all also posted positive returns.

By redirecting the focus to the various revenue lines, including Scheme Administration, Consultancy and Training, we have been able to provide the neces-sary impetus for diversified growth that ensures long-term profitability for the Group as envisaged in the 2018-2020 Strategic Plan.

Banking on the lessons learnt and the strong stake-holder networks developed over the years, we are confident that CPF Financial Services is on the right path to greater growth.

The company remains steadfast in its mission to maximize shareholder value by optimizing internal competencies, leveraging on technology and inno-vation as a medium of performance and; creating an organizational culture that attracts, motivates and retains top talent.

We have been able to provide the necessary impetus for diversified

growth that ensures long-term prof-itability for the Group as envisaged in the 2018-2020 Strategic Plan.

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Message from the Chairperson (continued)

In the year under review, we made great strides to secure our leadership position in the social security sector. Corporate governance remained a core pillar of growth for the organization and this was made even stronger by the on boarding of CPF into the Blue Company Initiative, an initiative of volunteer corporations and institutions who have the public interest at heart with the objective of encouraging companies to conduct business ethically and fight corruption in all its forms.

Additionally, CPF Financial Services also became an active member of the United Nations Global Com-pact; a voluntary initiative where the CPF Financial Services Group CEO joined other CEO’s around the world in committing to support implementation of the Sustainable Development Goals (SDG’s).

CPF Financial Services had embraced internation-al benchmarking standards on quality management for over a decade. In the year under review, we achieved yet another important milestone: the at-tainment of ISO 9001:2015 certification. The certifi-cation, awarded by the Kenya Bureau of Standards (KEBS) affirms CPF Financial Services’ position as a benchmark for quality management in business pro-cesses and practices.

The Company continues to work closely with corpo-rate partners, clients, County Governments, and the National Government to ensure that we remain on the path to achieving our mandate; that of fulfilling the lives of those who interact with our products and services.

2018-2020 STRATEGIC PLAN

In 2013 the Directors purposed to diversify into other revenue streams, with the aim of enhancing revenue and taking advantage of the competencies that had been developed over time. This dream remains ever so true with revenue lines namely: Laser Property Services Ltd (Laser), Laser Insurance Brokers Ltd (LIB), Laser Infrastructure and Technology Solutions Ltd (LITES) having been incorporated to support revenue generation for CPF Financial Services Ltd.

In order to achieve the purpose as encapsulated in the Mission Statement, CPF Financial Services Ltd will seek to attain the under-listed four key Strategic Goals in the period 2018-2020:

• Enhance Investment Returns;• Increase Market share in all identified revenue streams;• Optimize Organizational Capacity;• Foster Customer Experience and other Stake-holders Engagement.

Driven by the strong imperative to serve and fulfill the lives of our stakeholders, 48 % of the strategic plan 2018 -2020 had been implemented as at De-cember 31, 2018.

Appreciation

To our key stakeholders, business partners and es-teemed clients, your continued support and belief in our strategy has been vital to the attainment of CPF’s goals, objectives and successes. For this we remain forever grateful.

We have a great team across our employees, the leadership team including the Directors of our Subsidiaries all who have been instrumental in the achievement of these milestones. I express my ap-preciation to each one of them and look forward to our continued engagement in the coming year to ensure we continue to give each of our stakeholders every reason to be confident in us.

I would also like to appreciate our shareholder Lap-trust DB Scheme for believeing in our Vision. We assure you that your investment and subsequently members’ interests are in good hands.Thank you.

Dr. Julius Kipng’etich, CBSChairman- CPF Financial Services Ltd


Growth is never by mere chance; it is the result of forces working together. Benjamin Franklin

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Management Team

JOSEPH RONODirector - Strategy, Finance and Investments

CHRISTINE NYAMWANDADirector - Operations and Marketing

ISAAC MITEIGroup Head of Legal & Company Secretary

IRENE MBONGEGroup Head of Corporate Communication and

Public Affairs

EBLA MOHAMMEDGroup Head of Human Resource & Administration

SOSPETER THIGAGroup Head of Risk and Compliance

CORNELIUS NDUMAI

Group Head of Internal Audit

TONY OLANGHead of

Laser Infrastructure & Technology Solutions

JONATHAN MARUCHAExecutive Director

Laser Insurance Brokers

SHAFANA RAJANI

General ManagerLaser Property Services

HOSEA KILI, OGWGroup Managing Director/ CEO


Message from the the Group Managing Director/CEO

It gives me great pleasure to present to you the 2018 CPF Financial Services report and an overview of the performance and operations of CPF Financial Services for the year ended 31 December 2018.

Local and global socio-economic realities of 2016 and 2017 were instrumental in shaping the growth path of CPF Financial Services. Rising political risks, the looming Brexit, disimal performance by the fi-nancial services sector, as well as an increase in cy-bercrime played a major role in shaping the global economic outlook, which remained uneven and un-spectacular throughout the year.

CPF Financial Services remains robust despite the backdrop of economic uncertainty and financial vol-atility. From a strategic perspective, it is evident that the company will continue to deliver improved and accelerated growth for the current year.

Performance HighlightsThe year under review saw the company deliver a strong set of results against a backdrop of a chal-lenging economic environment. Critical to the good performance was keeping our clients and stakehold-ers at the heart of everything we do and adherence to the Triple bottom line; People, Planet, Profits.

The Profit before tax as at December 31, 2018 was Ksh.226,740,000 an increase from the 2017 figures which were reported at Ksh.190,878,000; an in-crease of 18.7%.

The total Assets for the company increased from Ksh.602, 858, 000 to Ksh. 730,235,000 in the finan-cial period 2018.

This was a commendable performance given the economic growth projections for the year was at a suppressed 4.7%, compared to the current year where growth is projected to hit 5.3%.

From a strategic perspective, it is evident that the company will con-tinue to deliver improved and accel-erated growth for the current year.

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THE CPF TRUST FUND

Our society is plagued with lots of family feuds arising from ignorance of existence of trusts which can professionally and amicably handle estates of persons who die intestate. Setting up of a trust is one of the solutions to minimize occurrence of un-claimed assets whose beneficiaries are most likely languishing in poverty.

The CPF Trust Fund was established in February 2014. This was as a result of the many disputes arising from guardians, formally appointed or oth-erwise fighting to take care of minors left behind by deceased members. In most cases, such benefits easily end up in the hands of relatives who might not be competent or willing to use them for the good of the real beneficiaries.

In light of the Group’s Vision “Fulfilling Lives” the the Directors found it prudent to establish a Trust Fund to take care of the school fees & medical needs for minors of client schemes’ deceased members until such a time that they attain majority status.

As administrators, we strive to provide uninterrupt-ed professional management of the CPF Trust Fund for the education and maintenance of the benefi-ciaries. The Trust fund aims to take the headache off the individuals involved, on how best to allocate benefits among dependents by applying the legally recognized principles.

Through the CPF Trust Fund, the correct individuals are identified and derive the benefit; ensuring re-duced administration costs, while minimizing com-plex administrative issues like having independent custodians and fund managers on board to ensure that the Trust is managed in the best interest of the beneficiaries.

Message from the Group Managing Director/CEO (continued)

FUND STATISTICS

The Trust Fund has grown both in fund size and membership, since its establishment from the inau-gural number of 3 members only to current mem-bership of 301 as at 31st December 2018.

The fund value as at 31st December 2018 stood at Ksh.437,781,894 and the same is projected to grow exponentially as the Trust Fund embarks on active awareness and marketing campaign.

CLAIMS REPORT

The following are the total payments made since inception up to 31st December 2018 for the different categories;

Category Amount

(Ksh)School Fees 83,703,992.00

Medical Expenses -Upkeep 4,542,981

School Related Expenses 1,600,593Books 77,389

Uniform 68,790Others 2,080,462

Reimbursement 1,660,139Final Payouts 5,330,668

Land purchase 4,680,000

Total Payouts Made since Inception 103,745,014

400

300

200

100

02014 2015 2016 2017 2018

Year

Growth of CPF Trust Fund Over the Years

Num

ber o

f Mem

bers


Message from the Group Managing Director/CEO (continued)

CLAIMS REPORT (continued)

The Fund pays medical claims, school fees and at some instances has purchased property to help the beneficiaries establish themselves economically. The Fund has also assisted some beneficiaries to relocate to their rural home to help in cutting living costs in order to stretch longevity of the funds as much as possible, for the benefit of the dependents.

THE TRUST FUND GROWTH STRATEGY

It is envisaged that for the Trust to have the desirable impact as envisioned by the Sponsor, the following are some of the potential clients;-

Other pension funds Partnerships with insurance firms to point their group life beneficiaries to the Trust Fund County Government bursary funds where we can provide administration service for the bursary. This will enhance transparency and accountability for the counties and allay the burden of the day to day operations. However the counties to still be in charge of identifying the beneficiaries of the bursaries. Members of the public who wish to donate to charities of their choice Members of the public who want to ensure posterity of their family vision within their generation Chairpersons of funeral committees where there are orphans who are of school going age

Going by the growth trajectory witnessed over the last 4 years, and the marketing strategies that man-agement has put in place, the CPF Trust Fund is ex-pected to be a game changer; helping Kenyans do better estate planning for their beneficiaries across the divide. Growth is expected to be not only our scheme’s membership, but from the general public as well.

FUTURE PROSPECTS AND STRATEGY

CPF Financial Services operates in a dynamic busi-ness environment with numerous shifts frequently redefining the business-scape. Changing tastes and preferences of customers, intense competition, al-terations in attitudes and moral values and a myriad of other economic factors and Government policies and regulations impact the business in one way or another.

Therefore, the success of CPF Financial Services will depend on its ability to foresee the environmen-tal changes and to modify its strategies appropriate-ly with internal and external environmental changes.

The legal and regulatory environment in which the business operates is characterized by legislation that allows little room for innovation and advocates for strict adherence to the law, some of which may be outdated given the time in which they were en-acted. The County Pension Bills remain a key factor which may impact on the company administration business; and as such continues to be a key item of focus. With several Bills having been floated and discussed in the year under review, the situation re-mains fluid and the company remains alert to the happenings within the legislative and government circles, and continues to proactively engage stake-holders in order to safeguard the gains made over the past years.

HOSEA KILI, OGW Group Managing Director / CEO CPF Financial Services Ltd

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Other Material Issues

RISK MANAGEMENT

CPF Financial Services Limited (the company) has put in place a robust Enterprise Risk Management Framework (ERMF) to guide it’s core functions along the agreed risk appetite thresholds. Risk is an ever present occurrence and has to be continually managed and contained. CPF has used the Committee of Sponsoring Organization (COSO) enterprise risk management Standard and ISO 31000 as the benchmarks for its own ERMF. CPF evaluates risks based on the following broad categories:

Governance & Strategy Risks – these risks may hamper the Company’s Stakeholders and Custom-ers holistically if not well managed. Any risk that has far reaching effect on the Company and its going concern assumption may be classified under this category.

Financial & Funding Risks – these risks involve the Company’s ability to harness resources to run its operations as well as its ability to safeguard existing resources from loss, inflation, and other economic and human factors.

Operational & Infrastructure Risks – these risks in-volve the three faceted approach of people, pro-cesses and technology which essentially run the day to day Company operations. A failure in any of these poses grave risk to the Company’s ability to meet its strategic objectives.

Compliance & Regulatory Risks – these risks involve possible non-compliance with industry regulations and Country Laws. CPF is primarily regulated by the Retirement Benefits Authority and as such there are far reaching regulations that it should strictly adhere to. During the year under review, a few key risks for the company materialized but were however man-aged.

The Company continues to manage risks proactive-ly and reports to the different Boards/clients on a quarterly basis. The company also continues to run a fully-fledged disaster recovery center aimed at en-suring business is not interrupted in case the head office is inaccessible.

RISK MANAGEMENT (continued)

The business continuity framework is benchmarked against ISO 22301. In relation to compliance with the key regulator – the Retirement Benefits Authority, the company contin-ued to ensure compliance with all regulatory require-ments. As an administrator, the company also plays an active role in ensuring that all it clients schemes are fully compliant with Laws, Regulations and Stat-utory requirements across the industry.

ISO 9001:2015 CERTIFICATION

ISO 9001:2015 recognizes organizations that link business objectives to operating efficiency, and is the world’s most popular management system standard used by over one million organizations around the world, helping them run more effectively and systematically.

The award of this standard, therefore, signals the commitment that the company has towards our customers including the effective documentation and management of records on their behalf. It fur-ther means that CPF Financial Services has a clear policy framework enabling prudent planning and im-plementation at all levels.



At CPF Financial Services, we actively seek to cre-ate sustainable value through our business activities – for our customers, employees, shareholders and society. We have embraced sustainability as a value that motivates and inspires our business undertak-ings.

In 2018, we made clear progress in implementing our sustainability strategy. We have taken a major step in this direction by training all our employees to become Sustainability Ambassadors. This means that we have anchored our commitment to sustain-able action even more firmly in our corporate cul-ture and into the day-to-day activities of every single employee.

Why We Care about Sustainability

Being in the Financial Services sector, and as a pension and retirement benefits administrator, we aim to create measureable value for society. Access to social security allows people to protect themselves from risk and helps them become, and remain, prosperous and resilient in old age. Even more importantly, it alleviates old-age poverty.

It is important to appreciate that risks associated with the pension and retirement benefits sectors are fast becoming more complex and interconnected as a result of climate change, globalization, urbaniza-tion and technological development. As a player in Kenya’s pension sector, we are increasingly expect-ed to use our core capabilities to help communities and society become more resilient to these inter-connected risks.

People worldwide are increasingly concerned about the state of the environment. Client demand for sustainable solutions is on the rise. For these and other reasons, CPF Financial Services signed on to the United Nations Global Compact. We support its foundational principles that affirm the importance of human rights, ethical labor practices, the environ-ment, anti-corruption, and support of the Sustaina-ble Development Goals.

Labour

The Sustainable Development Goals (SDGs), spe-cifically Goal No.8 seeks to: “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”.

At CPF Financial Services, our operations do not pose a significant risk for forced and compulsory la-bor. Even so, we do have policies and programs to protect against such occurrences. For project work that takes place in countries where there are possi-ble risks in our supply chain, our Code of Business Conduct communicates our expectations and spe-cifically prohibits forced and compulsory labor.

In addition, CPF Financial Services has a compre-hensive Harassment and Discrimination Policy that prohibits harassment or discrimination of employ-ees based on characteristics such as race, ethnicity, sex, gender, color, creed, religious beliefs, citizen-ship status, national origin, age, marital status, sex-ual orientation, gender identity, gender expression, or disability.

At CPF Financial Services we seek to fulfill the lives of our stakeholders and the community

at large by conducting our business in a so-cially, environmentally and ethically responsible

manner. We strive to continually employ a sustainable business model in order to confer

long-term benefits.

Our formalized strategy at CPF Financial Services is em-bodied by our sustainability statement:

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Creating Sustainable Value (continued)

Environment

CPF Financial Services’ environmental commit-ments, which are consistent with our Sustainabili-ty Policy; Health, Safety, Security, and Environment Policy; and ISO 9001:2015, help the Company mon-itor compliance with environmental regulations and reduce the environmental impacts of our operations. We actively track and report our carbon footprint and have programs in place to conserve resources. The year ended December 31st 2018 saw CPF Fi-nancial Services officially hand over the Freedom Heights Mall to the mall’s anchor tenant – Naivas Supermarket. The Freedom Heights Mall complex is an investment of the LAPTRUST Scheme, a scheme administered by CPF Financial Services - and will host a supermarket and over 50 businesses includ-ing banks, clinics, restaurants and retails stores.

The mall is adjacent to the Freedom Heights apart-ment blocks consisting of 252 modern housing units and the anchor tenant, Naivas Supermarket, is set to take up approximately 20,000 square feet in the mall. The building incorporates various sustainable technologies that include: solar water heating sys-tems, metered piped gas and energy saving design through provision of adequate natural lighting & ventilation and a water recycling system.

In the year under review, CPF Group via its subsid-iary LITES, partnered with Global Access Networks Ltd on the Last Mile Project. The Last Mile Project is a Government of Kenya programme that is aimed at facilitating the objective of affordably connecting Kenyan households to the national network grid. This is geared towards achieving a national connec-tivity as part of the government’s goal of universal access to electricity by 2020.

Moreover, in the year under review, CPF Financial Services also broke ground on the Ololua Ridge project, on behalf of its client scheme Laptrust, lay-ing great emphasis on preservation of the natural environment on which the project sits. The project sits on over 20 acres and is located in Nairobi’s up-market Karen area.

Environment (continued)

Once completed, Ololua Ridge, which will comprise 30 Luxury Homesteads will have picnic areas, walk-ing trails, a club house and a playground for all ages. The design of the project aims to preserve the green spaces and offer functionality and monetary value to future owners. The project has maintained over 70% of the tree cover as at the time of breaking ground; and in addition, more trees have been planted within the parcel to ensure preservation of the natural en-vironment.

Anti-bribery and anti-corruption

CPF Financial Services is committed to fair and re-sponsible business and prohibits all forms of bribery or corruption, and any business conduct that could create the appearance of improper influence. Our anti-bribery and anti-corruption policy sets out our global framework addressing the common areas of risk. In the year under review, CPF Financial Servic-es was among the first members of the Blue Com-pany Initiative - a private-sector-led initiative that aims to enroll entities that practice clean business with the aim of encouraging a corruption free envi-ronment and the building of a sustainable business environment in Kenya. Additionally, we are continually working to improve policies, processes and guidelines for managing sustainability issues in the supply chain. To this end, CPF Financial Services ensures that sustainability is an integral part of its sourcing and procurement function to ensure that we are able to uphold our commitment to sustainability through the products and services we purchase, and contractual agree-ments we enter into.

We incorporate environmental, social and govern-ance criteria to assess the goods and services we buy, in line with best value and in compliance with relevant legislation. We also ensure relevant sustain-ability clauses are included in contracts with suppli-ers, such as ethical conduct and labor, health and safety and environmental standards.


Creating Sustainable Value (continued)

Anti-bribery and anti-corruption (continued)Over the years CPF Financial Services has adopt-ed various initiatives as drivers of business. These include the Organizational Performance Index, Champions of Governance and Blue Company In-itiative. With a view of formalizing our sustainabili-ty initiative, CPF Financial Services in 2018 signed up to The United Nations Global Compact (UNGC), which is the world’s largest corporate sustainability initiative that calls on companies to align strategies and operations with universal principles on human rights, labour, environment and anti-corruption, and take actions that advance societal goals.

Protection of Human Rights

Protection of human rights is embedded into CPF Financial Services’ corporate systems and policies, including our Code of Conduct Policy, Equal Em-ployment Opportunity Practices as well as Harass-ment and Discrimination Policy.

CPF Financial Services has systems and processes in place to comply with the Kenya’s human rights statutes. Furthermore, as a signatory to the UN Global Compact, we commit to its human rights and labor principles.

At CPF Financial Services, we respect the rights of our employees to freedom of association. We also encourage and support diversity in gender, race and ethnicity.

Future Outlook

Our sustainability approach is tied to our corporate strategy which has four strategic goals: Enhance investment returns, which requires us to increase turnover for competitive returns to our shareholders; Increase Market Share, which requires us to expand our scheme administration market share from cur-rent 3% to 10% and grow brand perception to 80%; Optimize Organizational Capacity, this calls on us to enhance productivity and institutional efficiency and to reduce our cost to income ratio;

Foster customer experience and other stakeholder engagement, this requires us to foster and maintain a favorable business operating environment for CPF Financial Services and to achieve a customer satis-faction rating of 90%.

We appreciate that sustainability remains a journey, not a destination and integrating the Sustainable Development Goals into our daily operations has been both an inspiring and a humbling process.

We are happy to report that we have fully embraced the SDGs, and appreciate that there is plenty of room to do more in this regard. We are cognizant of the challenges facing the world today, and es-pecially the poor among us. We are, however, ener-gized more by the opportunities the SDGs present for economic empowerment.



LabourCPF Financial Services has a comprehensive Harass-ment and Discrimination Policy that prohibits harassment or discrimination of employees based on characteristics such as race, ethnicity, sex, gender, color, creed, religious beliefs, citizenship status, national origin, age, marital status, sexual orientation, gender identity, gender expres-sion, or disability.

EnvironmentCPF Financial Services’ environmental commitments, which are consistent with our Sustainability Policy; Health, Safety, Security, and Environment Policy; and ISO 9001:2015, help the Company monitor compliance with environmental regulations and reduce the environmental impact of our operations.

Anti-bribery and anti-corruption CPF Financial Services is committed to fair and respon-sible business and prohibits all forms of bribery or cor-ruption, and any business conduct that could create the appearance of improper influence.

Protection of Human RightsAs a signatory to the UN Global Compact, we commit to its human rights and labor principles.


Corporate Governance Statement

Principles of Corporate Governance

Corporate governance defines the process and the structure used to direct and manage the business affairs of an institution with the aim of enhancing corporate accountability and shareholders’ long term value while taking into account the interest of other stakeholders.

The Board of Directors is responsible for the Govern-ance of the Company and is committed to ensuring that its business operations are conducted with the highest degree of integrity and in compliance with the law, internationally accepted principles and the best practices of corporate governance and busi-ness ethics. The Board also focuses on a corporate agenda that maximizes shareholder value, increases profitability and guarantees a sustainable business. To this end, the Board has ensured that policies and strategies have been put in place to ensure that the company’s objectives aimed at promoting and pro-tecting shareholder value are achieved.

The Company also has put in place processes, sys-tems, practices and procedures, which are regularly reviewed and updated embracing the changing cor-porate environment and world trends. In this respect, the Board confirms that the Company complies with all the relevant Legal and Regulatory requirements including the provisions of the Retirement Benefits Act and the Regulations issued by the Retirement Benefits Authority.

Adherence to universally accepted corporate gov-ernance practices is a norm to us and these princi-ples have been integrated into the Company’s value system to inculcate a positive corporate culture that reflects CPF as a learning organization. The princi-ples and standards adhered to by the Board have been developed with close reference to guidelines on corporate governance issued by the Centre for Corporate Governance, Institute of Certified Secre-taries, Kenya (ICS), the Mwongozo code of Govern-ance for state corporations and international best practices.

Board Charter

The board charter which acts as a reference guide for the Directors was inspired by the dictates of good corporate governance. It stipulates the individual and collective responsibilities, powers, duties, obligations and the liabilities of the Directors. It sets out the roles and responsibilities of directors which include but are not limited to:

1. Strategic role which involves making significant decisions regarding the company’s vision, mission and strategies;2. Oversight role which is the overseeing the imple-mentation of the strategic plan and ensuring that the objectives stated therein are achieved;3. Stewardship role that include protecting and serving public interest and is so doing, enhancing the company’s public image both locally and over-sees;4. Fiduciary role that involves ensuring the board’s compliance with their legal, statutory and equitable duties when discharging their responsibilities;5. The board also has the role of approving the company’s financial statements, annual work plans as well as annual budgets;6. Reviewing the company’s Enterprise Risk Man-agement Framework and monitoring the compa-ny’s risk register.

The Manual also details the governance processes used to fulfill the roles and responsibilities above. The Manual provides policy direction on issues of accountability, transparency, value addition, legit-imacy, and overall credibility and business opera-tions of the Company as a learning organization.

The Board is also guided by the Company’s Mem-orandum and Articles of Association to formulate strategies and policies that help focus on optimiz-ing value for various stakeholders like client scheme members, staff, shareholders (Trustees) and the so-ciety at large



The Board

The CPF Board is established under the legal provisions outlined in the Company’s Memorandum & Articles of Association as produced and registered under the Companies Act, Cap 486 (now repealed) of the Laws of Kenya. As a matter of principle, the appointment to the Board of Directors is done through an effective process to ensure that a balanced mix of proficient individuals is made and that each of those appointed is able to add value to the Company’s strategic and policy decision making processes.

The names of the directors who held office in the year and to the date of this report are as set out below;-

1. Rosemary Nduku Ndiritu2. Catherine Nyambala3. Sahlan Keinan4. Hosea Kili, OGW5. John Katiku6. Stephen Lugalia7. Dr. Julius Kipngetich ,CBS, EBS – Board Chairman.

Board Responsibilitie

The primary role of the Board is to ensure long-term wealth and prosperity of the Company for the benefit of Shareholders, customers, employees and other stakeholders. The Board is responsible for policy formulation; Strategic Leadership and Planning; Resource Mobilization and Project management; Decision making; Compliance and Risk Characterization; Monitoring Progress and Direction of Executive Performance.

The Board generally meets Four times a year (Once every quarter) and additionally when necessary, to consider all matters relating to the overall control, business performance and strategy of the Company and in succession planning.

The Chairman chairs the Board whereas the Group Managing Director/CEO leads the management of the Company.

Board Responsibilities (continued)Attendance at statutory & special meetings in 2018

Name 29.03 27.6 28.6 29.6 20.7 22.08 03.10 20.12

1. Julius Kipngetich

√ √ √ √

2. Rosemary Ndiritu

√ √ √ √ √ √ √ √

3. Catherine Nyambala

√ √ √ √ √ √ √ √

4. Stephen Lugalia

√ √ √ √ √ √ √

5. Sahlan Keinan

√ √ √ √ √ √ √

6. John Katiku √ √ √ √ √ √ √

7. Hosea Kili √ √ √ √ √ √ √ √

Board Independence

The Board has set functional structures and standards to ensure the Directors are independent in decision making. The best corporate governance practices require that a Director remains independent of management and free of any business or other relationship that could materially interfere with exercising their independent judgment. The Board Manual stipulates governance roles and responsibilities of the Directors (Board), Chairperson and the CEO/GMD. The roles are separate though complementary in practice. As a matter of emphasis: The Board Chairperson provides overall leadership to the Board without limiting the principles of collective responsibility for Board decisions; the CEO/GMD is responsible to the Board and takes responsibility for the effective and efficient management of the Company operations. The Board evaluates the performance of the Group Managing Director annually to ensure this is in tandem with the principal objectives of the Company



Board Committees

The Board Committees are constituted by the Board which sets out the responsibilities delegated by the Board to the Committee and the Committee’s struc-ture and operation. The role of a Committee is to operate within the terms of its charter and to make recommendations to the Board for ratification or to determine on behalf of the Board certain matters with prior approval of the Board. The Board Com-mittees report to the Board.

The Committees of the Board are currently two be-ing the Audit & Risk Management Committee and the Finance, Investment, Staff & General Purposes Committee.

The Audit & Risk Management Committee is man-dated to raise the standards of corporate govern-ance by reviewing the quality and effectiveness of the internal control systems, the internal and exter-nal audit functions and the quality of financial re-porting. In addition to advising the Board on best practice, the committee also monitors manage-ment’s compliance with relevant legislation, regula-tions and guidelines as well as the Company’s laid down policies and procedures. The committee has direct access to the Audit function.

The Committee comprises of the following mem-bers: 1. Catherine Nyambala; 2. John Katiku; 3. Hosea Kili, 4. Isabel Juma- Co-opted Member

Attendance of meetingsName 15.03 27.03 13.06 19.09 10.12

1. Catherine Nyambala2. John Katiku3. Isabel Juma

4. Hosea Kili

5. Hosea Kili

Board Committees

The principal purpose of the Finance, Investment, Staff & General Purposes Committee is to oversee the financial strategies and objectives of the Company including matters relating to governance, finance, investments, staff and general administration and accordingly advise the Board. The overall functions of the Committee is to assist the Board in fulfilling its corporate governance and oversight responsibilities in relation to the day-to-day financial operations and controls including: recommending the annual budget, monitoring the production of management accounts, the approval of operational financial systems, treasury management controls and policy, procurements oversight, oversee investment accounts, approve appointment of auditors, oversee staff matters and corporate governance.

The Committee comprises of the following mem-bers: 1. Rosemary Ndiritu – Chair 2. Stephen Lugalia 3. Sahlan Keinan 4. Mr. Hosea Kili, OGWAttendance of meetings

Name 12.03 20.03 05.06 18.06 22.06

1. Rosemary Ndiritu

√ √ √ √ √

2. Stephen Lugalia

√ √ √ √ √

3. Sahlan Keinan √ √ √ √

4. Hosea Kili √ √ √ √ √

Attendance of meetingsName 05.09 13.09 14.09 10.12 19.12

1. Rosemary Ndiritu

√ √ √ √ √

2. Stephen Lugalia

√ √ √ √ √

3. Sahlan Keinan √ √ √ √ √

4. Hosea Kili √ √ √ √ √



Board Chairman

The Chairman is responsible for overall Board Leadership and its effectiveness. The chairman is appointed by the Board of Directors in accordance with the board governing instruments, namely the Board Charter and the Memorandum and Articles of Association.

He sets the agenda for board meetings in liaison with the company secretary and Chairs all board meetings and Annual general meetings. Additional-ly, the role of the Chairman includes facilitating the effective contribution of all directors and promoting communication and respectful relations between the Board and other stakeholders.

Board Development

CPF seeks to continuously review and develop of the Board’s capacity to deliver on its mandate by regularly reviewing and advising the Board on the skills, attributes and experience required for effec-tive governance. In this regard, an Annual Retreat for Board members and senior management is held to review among others: the CPF Group Strategic Direction; Annual Reports and Audited Accounts, Forecast Performance and Budgets; Risk profile and mitigation measures; Succession planning and emerging issues in corporate governance etc.

Further, every year the Company Secretary in liaison with board members undertakes a Directors’ train-ing needs and gaps analysis. From this assessment, a board training calendar is developed highlighting the various training programs required by the board members. During the year, the Directors attended the following training programs based on their indi-vidual needs assessment;

1.Corporate governance and leadership development;2.Reliable accounting and financial reporting;3.Investment of Pension fund assets;4.Compliance with laws and regulations;5.Certification of governance auditors and6.Continuous improvement in the conduct of business operations.

Conflict of Interest

In practice, directors may from time to time be faced with making decisions that could be affected by conflicts of interest. CPF Directors are expected to avoid conflict of interest by not being involved in making a decision that he or she has vested inter-ests in as this would bias his/her decision; or use the resources of the Company as collateral for his or her personal gain(s). Indeed any declarable conflicts of interest are declared before a decision is taken, and that director (s) with a conflict of interest either ex-cuse themselves from a vote or delegate their vote to their alternates. All members of the Board are required to declare abidance and sign off the CPF Governance Code of Conduct upon appointment.

Board Evaluation

It is important that the board continually evaluates its performance against set targets. Consequently, the board undertakes an annual evaluation of its performance and effectiveness in order to identify the areas for improvement and addresses them. The performance evaluation is conducted through an independent party and the report of the evalu-ation is discussed and adopted by the Board. In 2018, the Board evaluation was conducted on 29th May 2018 and the key findings of the evaluation were discussed during the board meeting held on 22nd August 2018.The following key areas are covered by the board evaluation:

1.Board Processes and accountability;2.Strategy, financial matters and performance;3.Compliance with all legal and ethical requirements;4.Board composition, induction, development and succession;5.Information and communication to stakeholders;6.Role and effectiveness of the Board Secretary.


Without continual growth and progress, such words as improvement, achievement, and success have no meaning.

Benjamin Franklin

“


Report of the Directors

The Directors submit their report together with the audited financial statements for the year ended 31 De-cember 2018, which disclose the state of affairs of CPF Financial Services Limited (the “company”) and its subsidiaries (together “the Group”). The annual report and financial statements have been prepared in accordance with the Kenyan Companies Act, 2015.

Activities

The principal activities of the Group is provision of retirement benefits scheme administration services, infrastructure & information technology services, property management services and insurance brokerage services.

Results for the year

2018Shs’000

2017Shs’000

Profit before taxation 226,740 190,878Taxation charge (77,029) (76,168)

Profit for the year transferred to retained earnings 149,711 114,710

DividedThe directors recommend the payment of dividend of Sh.149.7 per share for the year 2018 (2017: Sh 108)

Directors

The present membership of the Board is shown on page 5.

Business reviewThe board has pleasure in presenting the financial results of CPF Financial Services Limited (“the Holding Company” or the “company”) and the Group consolidated results for the year ended 31 December 2018. The principal activities of the Holding Company is provision of retirement benefits scheme administration services, training and consultancy. The principal activities for the Group is provision of benefits scheme administration services, infrastructure & information technology services, property management services, insurance brokerage services, training and consultancies offered through the subsidiaries and the parent company.

Performance Review

The performance of the Holding Company reflected an after tax overall profit for the year of Sh. 108,539,000 (2017: Sh. 108,849,000). The Group performance was an after tax profit of Sh 149,711,000 (2017: Sh. 114,710,000). Subsidiaries contributed 24% of the Group’s business.


Report of the Directors (continued)

Income Statement Review

The company’s financial statements are reflected on pages 34 to 38. The holding company experienced an increase in revenues for the period recorded at Sh 911,252,000 (2017: Sh. 765,087,000). This increase is due to the growth in the net assets of schemes under management. Administrative expenses increased also by 108,694,000 due to an increase in staff costs and other operational costs.

The turnover for the Group also increased from Sh. 976,571,000 to Sh 1,189,908,000 mainly driven by business growth in all the entities in the Group. Similarly the administrative expenses increased from Sh. 642,432,000 to Sh 759,339,000 which was mainly due to increase in general operations cost.

Balance Sheet and Cash flow Review

The company’s total assets increased from Sh. 602,858,000 to Sh. 730,235,000. Receivables also in-creased from Sh 36,910,000 to Sh 38,799,000 due to increase in revenue. Related party balances in-creased from Sh 43,980,000 to Sh 72,370,000 which was as a result of support to the subsidiaries. Payables increased from Sh 196,873,000 to Sh 228,309,000 due to accrual of pension payable arising from previous year’s penalty. Cash and cash equivalents increased from Sh. 38,636,000 to Sh 53,418,000 mainly due to improved performance.

The Group total assets increased from Sh. 591,146,000 to Sh 717,360,000. Receivables reduced from Sh 69,506,000 to Sh 49,452,000 due to impairment and collection. Payables reduced from Sh 233,076,000 to Sh 231,542,000 due to repayment of related party balances due by the parent company. Cash and cash equivalents increased from Sh. 68,105,000 to Sh. 89,992,000 mainly due increase in performance hence more funds were available for bank deposits.

Future Outlook

The 2019 financial year is expected to be more favourable than 2018. Economic growth is expect-ed to improve to 5.3% in 2019 from 4.7% recorded in 2018. The Company turnover is projected at Sh. 1,133,352,000 with a profit of Sh. 263,280,000 and the Group’s turnover is expected to be Sh. 1,606,946,000 with a projected profit of Sh. 396,664,000. Performance is expected to improve due to ad-ditional revenue lines which include agency banking as well stabilization of the consultancy and training revenue line. The fund values of the schemes under administration is also expected to grow and the drive to acquire more schemes to be administered. In addition, the company improved cashflow will result to available funds for investments resulting to growth in investment income.

Directors’ statement as to information given to auditors

Each of the persons who is a director at the date of approval of this report confirms that:• so far as the Director is aware, there is no relevant audit information of which the Group’s auditors are unaware; and• the Director has taken all the steps that he/she ought to have taken as a Director in order to make him-self/herself aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.


Report of the Directors (continued)

Auditors

Deloitte & Touche, having indicated their willingness, continue in office in accordance with the provisions of section 719(2) of the Kenya Companies Act, 2015. The directors monitor the effectiveness, objectivity and independence of the auditors. The directors also approve the annual audit engagement contract, which sets out the terms of the auditors’ appointment and the related fees.

BY ORDER OF THE BOARD

SecretaryIsaac MiteiNairobi, Kenya


Statement of Directors Responsibility

The Kenyan Companies Act, 2015, requires the directors to prepare financial statements for each financial year that give a true and fair view of the financial position of the Company as at the end of the financial year and of its profit or loss for that year. It also requires the directors to ensure that the Company and subsid-iaries maintains proper accounting records that are sufficient to show and explain the transactions of the Group and disclose, with reasonable accuracy, the financial position of the Group. The directors are also responsible for safeguarding the assets of the company and its subsidiaries, and for taking reasonable steps for the prevention and detection of fraud and error.

The directors accept responsibility for the preparation and presentation of these financial statements in accordance with the International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, 2015. They also accept responsibility for:

(i) designing, implementing and maintaining such internal control as they determine necessary to enable the presentation of financial statements that are free from material misstatement, whether due to fraud or error;(ii) selecting suitable accounting policies and applying them consistently; and(iii) making accounting estimates and judgements that are reasonable in the circumstances.

Having made an assessment of the company and its subsidiaries ability to continue as going concerns, the directors are not aware of any material uncertainties related to events or conditions that may cast doubt upon the company and its subsidiaries ability to continue as a going concerns.

The directors acknowledge that the independent audit of the financial statements does not relieve them of their responsibilities.

Approved by the Board of Directors on 19th march 2019 and signed on its behalf by:

_________________________________ __________________________________Hosea Kili Rosemary NdirituDirector Director


Independent Auditors’ Reportto the members of CPF Financial Services Limited

Opinion

We have audited the accompanying consolidated and company financial statements of CPF Financial Ser-vices Limited (the “company”) and its subsidiaries (together “the Group”), set out on pages 34 to 74, which comprise the consolidated and company statements of financial position as at 31 December 2018, and the consolidated and company statements of profit or loss and other comprehensive income, consolidated and company statements of changes in equity and the consolidated and company statements of cash flows for the year then ended, and the notes to the consolidated and company financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements give a true and fair view of the consolidated financial position of the Group and company as at 31 December 2018 and of its consolidated and company financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, 2015.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibil-ities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Con-solidated and Separate Financial Statements section of this report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the fi-nancial statements in Kenya. We have fulfilled our ethical responsibilities in accordance with these require-ments. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

The directors are responsible for the other information, which comprises the Report of the Directors as re-quired by the Kenyan Company’s Act, 2015. The other information does not include the financial statements and our auditors’ report thereon.

Our opinion on the consolidated and company financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

Deloitte & ToucheCertified Public Accountants (Kenya)Deloitte Place, Waiyaki Way MuthangariP.O Box 40092, 00100Nairobi, KenyaTel: +254 (20) 423 0000Cell: +254 (0) 719 039 000Fax: +254 (20) 444 8966Dropping Zone No. 92Email: [email protected]


Other Information (Continued)

In connection with our audit of the consolidated and company financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditors’ report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors and Those Charged with Governance for the Financial Statements

The Directors are responsible for the preparation of the consolidated and company financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Kenyan Companies Act, 2015, and for such internal controls as Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and company financial statements, the Directors are responsible for assessing the Group’s and company’s ability to continue as going concerns, disclosing, as applicable, matters relat-ed to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company and its subsidiaries or to cease operations, or have no realistic alternative but to do so. The Directors and those charged with governance are responsible for overseeing the Group’s and the company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements


• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material mis-statement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective-ness of the Group and company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting esti-mates and related disclosures made by the Directors.

Independent Auditors’ Reportto the members of CPF Financial Services Limited (continued)


Auditors’ Responsibilities for the Audit of the Financial Statements (Continued)


• Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or condi-tions that may cast significant doubt on the Group’s and company’s ability to continue as going concerns. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group and the company to cease to continue as going concerns.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclo-sures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or busi-ness activities within the Group to express an opinion on the consolidated and company financial state-ments. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on Other matters prescribed by the Kenya Companies Act, 2015In our opinion, the information given in the report of the Directors on pages 26 to 28 is consistent with the financial statements.

Certified Public Accountants (Kenya)Nairobi 12 April 2019

CPA Fredrick Aloo, Practising certificate No. 1537Signing Partner responsible for the independent audit

Independent Auditors’ Reportto the members of CPF Financial Services Limited (continued)


2018Consolidated Financial Statements


Statements of Profit or Loss and other Comprehensive Incomefor the year ended 31 December 2018

Group Company

Notes2018

Shs’0002017

Shs’0002018

Shs’0002017

Shs’000

Revenue 3 1,189,908 976,571 911,252 765,087Direct cost 4 (200,849) (139,753) (90,178) (74,082)

Gross profit 989,059 836,818 821,074 691,005Other income 5 4,985 5,971 1,083 5,165

Administrative and operating expenses 6 (759,339) (642,432) (632,185) (523,491)Impairment on trade recievables 21(c) (7,486) (9,479) (2,361) 58

Impairement on related party balances –(LITES) - - (16,501) -Impairment on bank deposits (479) - (266) -

Profit before taxation 226,740 190,878 170,844 172,737Taxation charge 11(a) (77,029) (76,168) (62,305) (63,888)

Profit for the year 149,711 114,710 108,539 108,849Other comprehensive income for the year - - - -

Total comprehensive income for the year 149,711 114,710 108,539 108,849


Group Company

Notes2018

Shs’0002017

Shs’0002018

Shs’0002017

Shs’000ASSETS

Non - current assetsEquipment 12 129,057 101,208 113,053 84,201

Intangible assets 13 69,790 20,107 65,428 16,044Investment property 14 58,200 55,000 58,200 55,000

Investment in subsidiaries 16 - - 30,000 30,000Staff mortgages 20 153,249 141,426 153,249 141,426

Due from related parties 18(c) - - 99,611 102,928Deferred taxation asset 23 34,330 25,771 14,759 5,741

444,626 343,512 534,300 435,340Current assets

Staff mortgages and loans 20 31,348 23,636 31,348 23,636Trade and other receivables 21 (a) 49,452 69,506 38,799 36,910

Tax recoverable 11(c) 11,687 24,959 - 24,356Due from related parties 18(b) 92,177 63,090 72,370 43,980

Cash and cash equivalents 15 89,992 68,105 53,418 38,636274,656 249,296 195,935 167,518

Total assets 719,282 592,808 730,235 602,858

Statements of financial Positionfor the year ended 31 December 2018


Group Company

Notes2018

Shs’0002017

Shs’0002018

Shs’0002017

Shs’000EQUITY AND LIABILITIES

Capital and reservesOrdinary share capital 22(a) 10,000 10,000 10,000 10,000

Share premium 22(b) 190,000 190,000 190,000 190,000Retained earnings 285,818 158,070 301,926 205,985

Total equity 485,818 358,070 501,926 405,985Capital and reserves

Tax payable 11(c) 1,922 1,662 1,922 -Intercompany payables 18(d) - - 68,292 23,905

Other amounts due to related parties 18(d) 8,478 31,397 6,281 29,166Deferred income 25 17,961 6,000 - -

Trade and other payables 24 205,103 195,679 151,814 143,802233,464 234,738 228,309 196,873

Total equity and liabilities 719,282 592,808 730,235 602,858

The financial statements on pages 34 to 74 were approved and authorized for issue by the board of directors on 19th march 2019 and were signed on its behalf by:

______________________ __________________________Hosea Kili Rosemary NdirituDirector Director

Statements of financial Positionfor the year ended 31 December 2018


Statements of Change in Equityfor the year ended 31 December 2018

GroupShare

capitalShs’000

SharepremiumShs’000

RetainedearningsShs’000

TotalShs’000

1 January 2017 10,000 190,000 43,360 243,360Total comprehensive income for the year - - 114,710 114,710

At 31 December 2017 10,000 190,000 158,070 358,0701 January 2018 10,000 190,000 158,070 358,070

Day 1 impairment adjustment - - (11,163) (11,163)Dividends - - (10,800) (10,800)

Total comprehensive income for the year - - 149,711 149,711

At 31 December 2018 10,000 190,000 285,818 485,818Company

1 January 2017 10,000 190,000 97,136 297,136Total comprehensive income for the year - - 108,849 108,849

At 31 December 2017 10,000 190,000 205,985 405,9851 January 2018 10,000 190,000 205,985 405,985

Day 1 impairment adjustment - - (1,798) (1,798)Dividends - - (10,800) (10,800)

Total comprehensive income for the year - - 108,539 108,539

At 31 December 2018 10,000 190,000 301,926 501,926


Statements of Cash Flowsfor the year ended 31 December 2018

Group Company

Notes2018

Shs’0002017

Shs’0002018

Shs’0002017

Shs’000Cash flows from operating activities 26 163,490 46,241 151,976 18,494

Cash flows from investing activitiesPurchase of equipment 12 (55,537) (13,727) (53,297) (12,266)

Purchase of intangible assets 13 (81,147) (5,798) (77,422) (4,878)Investment property capex enhancement 14 (6,422) - (6,422) -

Proceeds from disposal of equipment 1,502 - (53) -Net cash used in investing activities (141,604) (19,525) (137,194) (17,144)

Cash flows from financing activitiesInvestment in subsidiary - - - -

Cash used in financing activities - - - -Increase in cash and cash equivalents 22,887 26,716 14,782 1,350

Cash and cash equivalents at the beginning of the year 68,105 41,389 38,636 37,286

Cash and cash equivalents at the end of the year 15 89,992 68,105 53,418 38,636


Note to the Financial Statementsfor the year ended 31 December 2018

1. ACCOUNTING POLICIES

Statement of compliance

The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).For the purposes of reporting under the Kenyan Companies Act, 2015, the balance sheet in these finan-cial statements is represented by the statement of financial position and the profit and loss account is presented in the statement of profit or loss and other comprehensive income.

Application of new and revised International Financial Reporting Standards (IFRSs)

(i) Impact of relevant new standards

Impact of initial application of IFRS 9 Financial Instruments

In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives. The Group has elected not to restate comparatives in respect of the classification and measurement of financial instruments.

Additionally, the Group adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were applied to the disclosures for 2018 only and not to the comparative period.

The standard amends the classification and measurement models for financial assets. See below.

a) Classification and measurement of financial assetsThe Group has applied the requirements of IFRS 9 to instruments that continue to be recognised as at 1 January 2018 and has not applied the requirements to instruments that have already been derec-ognised as at 1 January 2018. Comparative amounts in relation to instruments that continue to be recognised as at 1 January 2018 have not been restated where appropriate in accordance with the transition provisions of the standard.

There has been no change in the measurement criteria for any of the Group’s financial assets on adoption of IFRS 9 after the consideration of the business model and cash flow characteristics. Upon adoption of IFRS 9 (2014), the Group’s financial assets and liabilities previously classified as at fair value through profit or loss (“FVTPL”) and amortized cost under IAS 39 “Financial Instruments: Rec-ognition and Measurement”, continued to be classified at FVTPL and amortized cost. Specifically, the trade receivables typically held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured subsequently at amortised cost and are subject to impairment. See (b) below.



1. ACCOUNTING POLICIES (Continued)

Application of new and revised International Financial Reporting Standards (IFRSs) (continued)

(i) Impact of relevant new standards (continued)

Impact of initial application of IFRS 9 Financial Instruments (continued)

b) Impairment of financial assetsIn relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model under IAS 39. Specifically, IFRS 9 requires the Group to recognise a loss allowance for expected credit losses on its financial assets as listed in (a) above. The Group measured the loss allowance for trade receivables at an amount equal to lifetime expected credit loss (ECL).

The ECL on trade receivables is estimated using a provision matrix by taking into account past default experience and an analysis of the debtors current financial position and adjusted for any factors that are specific to debtors general economic conditions.

The adoption of the standard has not resulted in any adjustments to the comparatives as allowed by the provisions of the standard.

c) Classification and measurement of financial liabilitiesThe application of IFRS 9 has not affected the Group’s accounting for its liabilities. The payables con-tinue to be recognised initially at fair value and subsequently measured at amortised cost.

d) Disclosures in relation to the initial application of IFRS 9There were no financial assets or financial liabilities which the Group had previously designated as at FVTPL under IAS 39 that were subject to reclassification or which the Group has elected to reclassify upon the application of IFRS 9. There has also been no change in the measurement criteria for any of the Group’s financial assets on adoption of IFRS 9 after the consideration of the business model and cash flow characteristics. Upon adoption of IFRS 9 (2014), the Group’s financial assets and liabilities previously classified as at fair value through profit or loss (“FVTPL”) and amortized cost under IAS 39 “Financial Instruments: Recognition and Measurement”, continued to be classified at FVTPL and amortized cost.

e) Impact of initial application of IFRS 9 on financial performanceThe adoption and application of IFRS 9 in the current year has resulted in an impairment of Sh 13,109,000 for the company and 40,707,000 for Group with an increase in provisions in the current year through the statement of profit or loss of Sh 2,361,000 for the company and Sh.7,486,000 for the Group.

f) Day one adjustmentThe application of IFRS 9 this resulted to an adjustment to the opening balance and a day one adjust-ment to retained earnings of Sh.11,162,000 for the Group and Sh.1,797,000 for the company.

The application of IFRS 9 has had no impact on the cash flows of the Group.




Application of new and revised International Financial Reporting Standards (IFRSs) (continued)

(i) Impact of relevant new standards and amendments to published standards (continued)

Impact of application of IFRS 15 Revenue from Contracts with Customers

In the current year, the Group has applied IFRS 15 Revenue from Contracts with Customers (as amend-ed in April 2016) which is effective for an annual period that begins on or after 1 January 2018. IFRS 15 introduced a 5-step approach to revenue recognition.

Revenue is recognised at an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods and services and at a point when the performance obligations asso-ciated with these goods and services has been satisfied. IFRS 15 also establishes principles about the nature, timing and uncertainty of revenue arising from contracts with customers. IFRS 15 requires entities to recognize revenue to reflect the transfer of goods or services to customers measured at the amounts an entity expects to be entitled to in exchange for those goods or services. Revenues from service contracts and service components of investment contracts (which are treated as service con-tracts) that are reported as commission’s income and interest income are within the scope of IFRS 15. IFRS 15 also provides guidance related to the costs to obtain and to fulfil a contract.

The application of IFRS 15 has not had a significant impact on the Group’s accounting policies as the nature of the Group’s revenue is that revenue is recognised at a point in time. See the ‘Basis of preparation’ section for the Group’s accounting policies for its revenue streams. IFRS 15 has not had a significant impact on the financial position and/or financial performance of the Group. Accordingly, there has been no adjustment for any of the financial statement line items as a result of the application of IFRS 15.

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and account-ing treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance includ-ing IAS 17 Leases and the related interpretations when it becomes effective. IFRS 16 will be adopted by the Group from 1 January 2019. The new standard eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lease accounting model.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeas-urement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.

The directors are still in the process of assessing the full impact of the application of IFRS 16 on the Group’s financial statements and it is not practicable to provide a reasonable financial estimate of the effect until




Application of new and revised International Financial Reporting Standards (IFRSs) (continued)(ii) Relevant new standards and amendments to published standards effective for the year ended 31 De-cember 2018

The following new and revised interpretation was effective in the current year and had no material impact on the amounts reported in these financial statements.

IFRIC 22 Foreign CurrencyTransactions and AdvanceConsideration

IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the ex-change rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign cur-rency which resulted in the recognition of a non-mon-etary asset or non-monetary liability (for example, a non-refundable deposit or deferred revenue).

The Interpretation specifies that the date of transaction is the date on which the entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration.

(iii) Relevant new and amended standards and interpretations in issue but not yet effective in the year ended 31 December 2018New and Amendments to standards

Annual Improvements to IFRSStandards 2015–2017Amendments to IAS 19 EmployeeBenefitsAnnual Improvements to IFRS Standards 2014-2017 CycleIFRIC 23: Uncertainty over Income Tax Treatments

Effective for annual periods beginning on or after

1 January 2019, with earlier application permitted

1 January 2019, with earlier application permitted

Effective for annual periods beginning on or after 1 January 2019Effective for annual periods beginning on or after 1 January 2019

The directors of the Group do not anticipate that the application of the new standards and amendments to the standards in the future will have a significant impact on the Group’s financial statements.

iv) Early adoption of standards

The Group did not early-adopt any new or amended standards in 2018.




Basis of preparation

The financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each re-porting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated and company financial statements is determined on such a basis.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which is described as follows:-

• Level 1 inputs are quoted in prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement dated.• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly, and• Level 3 inputs are unobservable inputs for the asset or liability.

Functional and presentation currency

These financial statements are presented in Kenya shillings (Sh) which is the Group’s functional cur-rency, the currency of the primary economic environment in which the entity operates. Except as oth-erwise indicated, financial information presented in Kenya Shillings has been rounded to the nearest thousand (Sh 000).

Basis of consolidation

(a) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsoli-dated from the date that control ceases.




Basis of consolidation (continued)

(a) Subsidiaries (Continued)

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-con-trolling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisi-tion date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiaries acquired in the case of a bargain purchase, the difference is recog-nised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between Group compa-nies are eliminated. Unrealised losses are also eliminated. When necessary amounts reported by sub-sidiaries have been adjusted to conform with the Group’s accounting policies.

The consolidated financial statements incorporate the financial statements of the company and its subsidiaries, LASER Infrastructure & Technology Solution Limited, LASER Property Services Limited and LASER Insurance Brokers Limited all having financial year end 31 December 2018.

(b) Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained in-terest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in oth-er comprehensive income are reclassified to profit or loss.




Revenue recognition

Administration income

Administration income is billed to customers and is recognised upon performance of services or at a point when the performance obligations associated with these services has been satisfied.

Consultancy fees

Consultancy fees is recognised upon performance of service at a point when the performance obliga-tions associated with these services has been satisfied.

Other income

Includes interest income from staff loans, interest on fixed deposit and loss/gain on revaluation of invest-ment property among other sources of sundry incomes for the Group. Income is recognized at a point in time when earned.

Plant and equipment

Plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges.

Depreciation

Depreciation on equipment is calculated on a reducing balance basis to write-off the cost of the equip-ment over the expected useful life at the following annual rates:

Motor vehicles 25%Fixtures and fittings 12.5%Equipment 12.5%Computers 30%

Gain or loss arising on disposal of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Intangible assets-computer software costs

Costs incurred on computer software are accounted for at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated on a reducing balance basis over the estimat-ed useful lives not exceeding a period of 4 years.




Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including prop-erty under construction for such purposes). Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in profit or loss in the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised.

Dividends payable

Dividends payable on ordinary shares are charged to retained earnings in the period in which they are declared. Proposed dividends are not accrued for until ratified in an Annual General Meeting.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

(i) Current taxThe tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

(ii) Deferred taxDeferred tax is recognised on temporary differences between the carrying amounts of assets and lia-bilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.The carrying amount of deferred tax assets is reviewed at the end of each reporting period and re-duced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.




Taxation (continued)

Income tax expense represents the sum of the tax currently payable and deferred tax.

(ii) Deferred tax

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

iii) Current and deferred tax for the year

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recog-nised in other comprehensive income or directly in equity respectively.

Employee benefits costs

(i) Group’s defined contribution retirement benefit scheme

The Group operates a defined contribution scheme for eligible employees. The assets of the scheme are held in a separate trustee administered fund. The Group’s contributions to the defined contribution plan are charged to the profit or loss in the year to which they relate.

ii) Statutory defined contribution pension scheme

The Group also contributes to the statutory National Social Security Fund. This is a defined contribution scheme registered under the National Social Security Act. The Group’s obligations under the scheme are limited to spe-cific contributions legislated from time to time. The Group’s contribution in respect of retirement benefit costs are charged to the profit or loss account in the year which they relate.

iii) Other employee entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave or compensated absences accrued at the end of the reporting period.




Impairment of tangible and intangible assets excluding goodwill

At the end of each reporting period, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Where a reasonable and consistent basis of allocation can be identified, corporate assets are also al-located to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an as-set (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.

Financial instruments

A financial asset or liability is recognised when the company becomes party to the contractual provisions of the instrument.

Financial assets

Trade receivables (IFRS 9)

Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are a classified as current assets. If not, they are presented as non-current assets.Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. A provision for impairment of receivables is established using an ECL model in line with the requirements of IFRS 9 as outlined in the next section below. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is charged to profit or loss.




Financial instruments (Continued)

Financial assets (Continued)

Impairment of financial assets (IFRS 9)

The Group recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised cost or at FVTOCI, lease receivables, trade receivables and contract as-sets. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

The Group always recognises lifetime ECL for trade receivables, contract assets and lease receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of condi-tions at the reporting date, including time value of money where appropriate.

For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that finan-cial instrument at an amount equal to 12-month ECL.

The Group considers that default has occurred when a financial asset is more than 90 days past due un-less the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

The Group write-offs debt only when there objective evidence that the debt will not be recovered and after it has exhausted its collection avenues.

Classification (IFRS 9)

As at the reporting date, all the Groups financial assets were at amortised cost. The Group determines the appropriate classification of its financial assets at initial recognition.

Financial assets at amortised costFinancial assets including cash and bank balances, staff mortgages and loans, trade and other receiv-ables and related party balances are measured at amortized cost if both of the following conditions are met and the asset is not designated as FVTPL:• the asset is held within a business model that is Held-to-Collect (HTC) as described below, and• the contractual terms of the instrument give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI).

ComparativesWhere necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.



2. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINITY

In the process of applying the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily appar-ent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that peri-od or in the period of the revision and future periods if the revision affects both current and future periods.

The key areas of applying the Group’s accounting policies are dealt with below:(i) Critical judgements in applying accounting policies

Equipment and intangible assetsCritical estimates are made by the directors in determining the useful lives of equipment and intangible assets. This is the basis on which the depreciation and amortization rates applied on property, plant and equipment and intangible assets respectively are based.Impairment of fixed assetsAt the reporting date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.Contingent liabilitiesThe directors evaluate the status of these exposures on a regular basis to assess the probability of the Group incurring related liabilities. However, provisions are only made in the financial statements where, based on the directors’ evaluation, a present obligation has been established.

(ii) Key sources of estimation uncertaintyImpairment losses on financial assetsAt each reporting period end, the company reviews the carrying amounts of its financial assets to de-termine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated and an impairment loss is recog-nised in the statement of changes in net assets whenever the carrying amount of the asset exceeds its recoverable amount.When measuring expected credit losses (ECL), the company uses reasonable and supportable for-ward looking information, which is based on assumptions for the future movement of different eco-nomic drivers and how these drivers will affect each other. The loss rate is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.

Fair value measurement and valuationSome of the Group’s assets and liabilities are measured at fair values for financial reporting purposes. In estimating the fair values of an asset or a liability, the Group uses market observable data to the extent it is available. Where level I inputs are not available the Group engages third party qualified val-uers to perform the valuation. The board and management work closely to establish the appropriate valuation techniques and inputs to the model.



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

3. REVENUEPension administration fees and other Trusteesupport services 902,447 759,879 902,447 759,878Consultancy fees 138,786 65,103 8,805 5,209Property management and valuation fees 64,046 82,239 - -Project management fees 14,699 11,240 - -Insurance brokerage fees 69,930 58,110 - -

1,189,908 976,571 911,252 765,087

4. DIRECT COSTSOffice rent and service charge 28,945 30,958 24,685 24,209Consultancy expense 16,403 30,878 16,403 13,728Other direct costs 134,420 61,443 31,763 21,953Insurance 12,025 7,815 8,371 6,538Printing and stationery 9,056 8,659 8,956 7,654

200,849 139,753 90,178 74,082

5. OTHER INCOMEInterest income from staff loan 1,969 2,276 1,969 2,276Interest on fixed deposit 4,452 924 1,542 215Sundry income 1,786 2,771 794 2,674Loss on revaluation of investment property (note 11) (3,222) - (3,222) -

4,985 5,971 1,083 5,165



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

6. ADMINISTRATIVE AND OPERATING EXPENSESStaff costs (note 7 ) 536,698 473,762 437,063 381,245ICT costs (note 9) 24,531 21,334 20,425 16,316Director emoluments – fees (note 8) 25,412 23,429 23,192 21,459 - other emoluments - 3,193 - 2,083Board expenses 22,132 17,351 13,699 12,197Auditors remuneration 3,000 3,162 1,500 1,762Depreciation (note 12) 27,561 20,308 24,320 17,103Amortisation (note 13) 29,910 8,617 28,041 6,876Assets write off 1,556 - - -Professional fees and consultancies 2,478 1,207 23,134 16,200Marketing and promotion (note 10) 52,871 38,743 30,974 22,336Other expenses 33,190 31,326 29,837 25,914

759,339 642,432 632,185 523,491

7. STAFF COSTSSalaries and wages 376,786 327,185 299,868 259,056Social security costs 56,374 38,598 47,197 30,448Staff bonus credit 16,432 26,193 14,722 22,376Leave allowance 10,175 15,182 8,316 12,865Staff welfare 6,141 5,457 6,141 5,415Education and training 32,462 26,048 29,090 23,685Staff medical insurance 35,803 33,255 29,395 26,106Other staff costs 2,525 1,844 2,334 1,294

536,698 473,762 437,063 381,245



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

8. DIRECTORS COSTSDirectors Monthly Allowances 25,412 23,429 23,192 21,459Board Meeting Expenses 22,132 17,351 13,699 12,197Other Emoluments - 3,193 - 2,083

47,544 43,973 36,891 35,739

9. ICT COSTSAnnual Software Licences 11,837 10,285 9,522 7,591Internet, Website & Networking 8,495 8,297 6,814 6,493Computer & Computer Accessories 1,253 1,814 1,143 1,594ICT Consultancy & Outsourcing 2,946 938 2,946 638

24,531 21,334 20,425 16,316

10. MARKETING & PROMOTIONNetworking & Advocacy 2,459 3,644 - 206Brand Management 4,993 1,572 4,557 1,306Advertising & Publicity 5,528 2,595 4,545 2,110Promotional Materials 6,967 7,253 1,800 2,807Stakeholder Activities 5,621 1,736 5,204 1,452CSR & Change Management 2,447 200 1,793 126Strategic Plan Review & Monitoring 5,154 4,255 3,787 2,653Other Business Development Costs 19,702 17,489 9,288 11,676

52,871 38,743 30,974 22,336



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

11. TAXATIONa) Taxation charge

Current taxation based on adjusted profitfor the year at 30% 88,052 17,351 13,699 60,950Deferred tax credit (note 23) (11,023) (404) (9,557) 2,938Prior year deferred tax overprovision - (2,219) - -

77,029 76,168 62,305 63,888(b) Reconciliation of taxation charge to expected taxation based on accounting profit

Profit before taxation 226,740 190,878 170,844 172,737Taxation at the applicable rate of 30% 62,533 57,263 50,253 51,821Tax effect of expenses not allowable for tax 15,858 9,746 11,052 9,129Prior year under provision (1,362) 9,160 - 2,938Tax effect on day 1 Adjustment - - -

77,029 76,168 62,305 63,888(c) Taxation recoverable/(payable)

At the beginning of the year 23,297 (24,942) 24,356 (21,178)Taxation charge (77,029) (72,871) (62,305) (60,950)Tax paid 63,497 121,110 36,029 106,484

Taxation recoverable 11,687 24,959 - 24,356

Taxation payable (1,922) (1,662) (1,922) -



Motor vehiclesShs’000

Furniture, fittings and equipment

Shs’000Computers

Shs’000Total

Shs’000

12. (a) EQUIPMENT – GroupCOSTAt 1 January 2017 7,474 138,026 70,020 215,520Additions - 7,327 6,400 13,727

At 31 December 2017 7,474 145,353 76,420 229,247At 1 January 2018 7,474 145,353 76,420 229,247Additions 9,843 27,800 17,894 55,537Disposal - - (220) (220)

At 31 December 2018 17,317 173,153 94,094 284,564DEPRECIATIONAt 1 January 2017 7,474 53,072 47,188 107,734Charge for the year - 11,538 8,770 20,308

At 31 December 2017 7,474 64,610 55,958 128,042At 1 January 2018 7,474 64,610 55,958 128,042Charge for the year 2,461 13,566 11,531 27,561Disposal - - (90) (90)

As at 31 December 2018 9,935 78,176 67,396 155,507NET BOOK VALUE

At 31 December 2018 7,382 94,977 26,698 129,057

At 31 December 2017 - 80,743 20,465 101,208



Motor vehiclesShs’000

Furniture, fittings and equipment

Shs’000Computers

Shs’000Total

Shs’000

12. (a) EQUIPMENT – CompanyCOSTAt 1 January 2017 7,474 117,414 64,228 189,116Additions - 6,831 5,435 12,266

At 31 December 2017 7,474 124,245 69,663 201,382At 1 January 2018 7,474 124,245 69,663 201,383Additions 9,843 27,620 15,835 53,297Disposal - - (220) (220)

At 31 December 2018 17,317 151,865 85,278 254,460DEPRECIATIONAt 1 January 2017 7,474 48,291 44,309 100,074Charge for the year - 9,498 7,605 17,103

At 31 December 2017 7,474 57,789 51,914 117,177At 1 January 2018 7,474 57,789 51,914 117,177Charge for the year 2,461 11,760 10,099 24,320Disposal - - (90) (90)

As at 31 December 2018 9,935 69,549 61,923 141,407NET BOOK VALUE

At 31 December 2018 7,382 82,316 23,355 113,053

At 31 December 2017 - 66,454 17,747 84,201



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

13. INTANGIBLE ASSETS - SOFTWARECOSTAs at 1 January 81,151 75,352 70,357 65,476Additions 81,147 5,798 77,422 4,878Asset written off (4,564) - - -

As at 31 December 157,734 81,150 147,779 70,354AMORTISATIONAs at 1 January 61,043 52,426 54,310 47,434Charge for the year 29,910 8,617 28,041 6,876Adjustment for assets written off (3,009) - - -

87,944 61,043 82,351 54,310

NET BOOK VALUE 69,790 20,107 65,428 16,044

14. INVESTMENT PROPERTYAt start of the year 55,000 55,000 55,000 55,000Capital Expenditure Enhancement 6,422 - 6,422 -Fair value adjustment (3,222) - (3,222) -

At end of the year 58,200 55,000 58,200 55,000

Fair value measurement of the Group’s investment properties

The Group’s Investments Property are stated at their revalued amounts, being the fair values at the date of revaluation, less any impairment losses. The fair value measurements of the Group’s investment prop-erty as at 31 December 2018 were performed by Laser Property Services Limited, Registered Valuers and Estate Agents.

The company is a related company to CPF Financial Services Limited as indicated in note 1. Laser Prop-erty Services Limited, are members of the Institute of Surveyors of Kenya and they have appropriate qual-ifications and relevant and recent experience in the fair value measurement of properties in the various locations in Kenya. The fair value of buildings was determined by reference to market evidence of recent transactions for similar properties. In estimating the fair value of the properties, the highest and best use of the properties is their current use.



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

15. CASH AND CASH EQUIVALENTSUnutilized deposits for staff mortgages* 19,301 33,868 19,301 33,868Fixed deposits maturing within 90 days 45,260 18,894 24,761 4,310Bank balances 25,356 15,173 9,333 360Cash at hand 75 170 23 98

At the end of the year 89,992 68,105 53,418 38,636

* The unutilized deposits for staff mortgages can be accessed by the company without any restrictions.

16. INVESTMENT IN SUBSIDIARIES (COST) – Company

At Cost: Group Company

Details of investmentCountry of

incorporation Activity

2018% of

equity interest

2017% of

equity interest

2018Shs’000

2017Shs’000

LASER Infrastructure & Technology Solutions

Limited (LITES) (100,000 shares of Ksh

100 each) Kenya

Infrastructure & technology

services 100% 100% 10,000 10,000LASER Property Services Limited

(LASER) (100,000 shares of Ksh 100

each) Kenya

Property management

services 100% 100% 10,000 10,000LASER Insurance

Brokers Limited (LIBS) (100,000 shares of Ksh

100 each) Kenya

Insurance brokerage

services 100% 100% 10,000 10,000

30,000 30,000



Cur

rent

ass

ets

Non

-Cur

rent

as

sets

Cur

rent

liab

ilitie

sN

on-c

urre

nt

liabi

litie

s

2018

Shs’

000

2017

Shs’

000

2018

Shs’

000

2017

Shs’

000

2018

Shs’

000

2017

Shs’

000

2018

Shs’

000

2017

Shs’

000

LASE

R In

frast

ruct

ure

& Te

chno

logy

So

lutio

ns L

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d (L

ITES

)70

,833

23,1

6932

,472

29,0

3139

,982

13,6

3213

6,18

911

3,15

9LA

SER

Prop

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Ser

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s Li

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d (L

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40,5

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556

7,83

110

,072

16,2

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Insu

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s Li

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d (L

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56,3

1049

,693

3,33

04,

370

23,8

7329

,445

957

133

Rev

enue

sPr

ofit/

(loss

) bef

ore

tax

Tota

l com

preh

ensi

ve

inco

me

2018

Shs’

000

2017

Shs’

000

2018

Shs’

000

2017

Shs’

000

2018

Shs’

000

2017

Shs’

000

LASE

R In

frast

ruct

ure

& Te

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logy

So

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ns L

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d (L

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)15

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078

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(24,

414)

LASE

R Pr

oper

ty S

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Lim

ited

(LAS

ER)

81,3

1693

,676

9,60

633

,954

6,48

322

,725

LASE

R In

sura

nce

Brok

ers

Lim

ited

(LIB

S)69

,930

58,1

1028

,346

8,59

917

,234

7,54

8

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18. RELATED PARTY BALANCES AND TRANSACTIONSa) Nature of related party relationships

Companies and other parties related to the group include those parties who have the ability or where the Group has the ability to exercise control or exercise significant control over the operating and finan-cial decisions. The immediate parent and ultimate controlling party of the Group is Laptrust Registered Trustees Limited. The Group transacts with companies owned by the parent company and other related parties by virtue of common directorship.

Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

a) Nature of related party relationshipsLASER Property Services Limited - - 69 1,727LAPTRUST Defined Benefits Scheme 4,167 1,002 - -LAPTRUST Defined Benefits Scheme –(Admn Fees) 677 4,344 677 4,344LAPTRUST Defined Benefits Scheme–(Professional Fees for LITES/LPS) 15,709 19,835 - -LAPTRUST (Umbrella) Retirement Fund -Recharges 597 100 597 100LAPTRUST (Umbrella) Retirement Fund –(Admn Fees) 33,527 19,839 33,527 19,839CPF Individual Pension Scheme (Admn Fees) 2,218 1,201 2,218 1,201Due from CPF/GALN joint operation 32,764 9,893 32,764 9,893Superfund Multipurpose SACCO 1,318 6,876 1,318 6,876LAPA SACCO 1,200 - 1,200 -

92,177 63,090 72,370 43,980a) Nature of related party relationships

LASER Infrastructure & Technology Solutions Limited (Gross) - - 111,112 97,928LASER Infrastructure & Technology Solutions Limited (Shareholders Loan) - - 5,000 5,000Impairment Adjustment - - (16,501) -LASER Infrastructure & Technology Solutions Limited (Gross) - - 99,611 102,928



18. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)

Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

d) Due to related partiesLASER Insurance Brokers Limited - - 14,969 21,921LAPTRUST Defined Benefits Scheme 8,478 30,728 6,281 28,497LASER Infrastructure and Technology Solutions Limited - - 53,323 1,984CPF Individual Pension Scheme - 669 - 669

8,478 31,397 74,573 53,071e) Related party transactions

Details of the transactions between the Group and related parties that are members of the Group are disclosed below:

(i) Purchase of goods and services

2018Shs’000

2017Shs’000

LASER Infrastructure & Technology Solutions Limited 122,462 29,734LASER Property Services Limited 434 265

122,896 29,999

Related party transactions relate mainly to the purchases and sales of service as well as recharges of manage-ment services within the Group. LASER Infrastructure & Technology Solutions Limited transactions also include purchase of computers and structured cabling works provided to CPF Financial services Limited Services.

(ii) Management fees revenue

2018Shs’000

2017Shs’000

LAPTRUST Defined Benefits Scheme 746,760 672,827LAPTRUST (Umbrella) Retirement Fund 146,345 78,028LAPTRUST Individual Pension Scheme 9,342 8,867

902,447 759,722

Management fees relate to Pension administration fees and Trustee support services paid by the Schemes under CPF administration to the parent company which is CPF Financial Services Limited



18. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)

e) Related party transactions (Continued)

(i) Key management compensation

2018Shs’000

2017Shs’000

The remuneration for key management duringThe year was as follows:Salaries and other benefits 201,960 127,765

(ii) Directors’ remuneration

2018Shs’000

2017Shs’000

Fees for services as directors 36,246 38,326Other emoluments (included in key managementcompensation) 11,298 5,647The remuneration for key management duringThe year was as follows:Salaries and other benefits 47,544 43,973




20. STAFF MORTGAGES AND LOANS

Group & Company

2018Shs’000

2017Shs’000

CfC Stanbic Bank Limited 41,945 26,354KCB S&L Mortgages 102,880 91,949Housing Finance Company Kenya Limited 39,772 46,759

184,597 165,062

CPF Financial Services Limited has entered into administrative agreements with the financing institutions to facilitate the lending of home mortgages and car loans to staff. The company has placed deposits with these financing institutions out of which the loans are issued to its employees.

These mortgages are issued at a preferential rate ranging between 4% and 6% earning interest income which is disclosed under note 5.

Staff mortgages and loans relate to funds that have been utilised by the institutions in advancing to CPF employees while the unutilised funds have been disclosed under cash & cash equivalents in note 12 and earn interest at rates ranging from 1 to 3%.

2018Shs’000

2017Shs’000

Maturity of staff mortgages and loansCurrent – Due within 12 months 31,348 23,636Non-current – Past 12 months 153,249 141,426

184,597 165,062



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

21. TRADE AND OTHER RECEIVABLESa) Trade and other receivablesTrade receivables 5,716 23,535 798 2,989Other receivables 20,784 13,128 17,229 12,894Withholding tax receivable 22,952 32,843 20,772 1,027

49,452 69,506 38,799 36,910b) Trade Receivables reconciliationTrade receivables (Gross) 46,423 45,595 13,907 11,940Provision for impairment 21(c) (40,707) (22,059) (13,109) (8,951)

Trade receivables (Net) 5,716 23,536 798 2,989c) Impairment reconciliation

Group2018

Shs’000

Company 2017

Shs’000At January 1 22,059 8,951Day 1adjustment (through statement of changes in equity) 11,162 1,797Impairment provision expense (through P&L) 7,486 2,361

At 31 December 40,707 13,109

22. SHARE CAPITAL(a) Ordinary share capitalAuthorised, issued and fully paid:100,000 ordinary shares of Sh 100 each 10,000 10,000(b) Share premium100,000 shares at a premium of Shs 1,900 each 190,000 190,000



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

23. DEFERRED TAXATION ASSETThe deferred taxation asset is attributableto the following items:AssetsExcess depreciation over capital allowances 7,313 4,375 6,968 3,512Tax losses carried forward 21,565 25,505 - -Leave pay provision 2,219 924 2,053 2,229Provision for doubtful debts 7,313 - 5,738 -Deferred tax not recognised - (5,033) - -

Net deferred taxation asset 34,330 25,771 14,759 5,741The movement on the deferred taxationaccount is as follows:At beginning of year 25,771 23,956 5,741 8,679Credit to profit or loss (note 8(a)) 11,023 404 - -Deferred tax on Day 1 Adjustment (3,349) - (539) -Prior year overprovision 885 (2,219) 9,557 (2,938)

At end of year 34,330 25,771 14,759 5,741

24. TRADE AND OTHER PAYABLESTrade payables 53,976 65,852 19,675 35,141Staff payroll liabilities 32,109 24,480 29,572 20,266Staff pension payable 21,411 10,845 19,872 4,682Staff leave pay provision 9,357 9,193 6,842 7,431Other payables 66,640 76,267 62,155 71,756VAT payable 10,810 9,042 2,898 4,526Dividend Payable 10,800 - 10,800 -

205,103 195,679 151,814 143,802

25. DEFERRED INCOME

Deferred income related to commissions received against insurance policies sold to the Local Authorities Pensions Trust amounting to Shs. 17,961,000 (2017: Sh 6,000,000).



Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

26. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWSReconciliation of profit/(loss) before taxation to cash generated from operationsProfit/(loss) before taxation 226,740 190,878 170,845 172,737Adjustments for:Depreciation on property, plant and equipment (note 12) 27,561 20,308 24,320 17,103Amortisation of intangible assets (note 13) 29,910 8,617 28,041 6,876Fair value loss on revaluation of investment property (note 14) 3,222 - 3,222 -Impairment Adjustment (Consolidation AJE) (16,501) - - -Adjusted for working capital changes:(Decrease)/increase in staff mortgages receivable (19,536) 2,940 (19,536) 2,940Increase in trade and other receivables 22,139 39,452 (1,889) 65,977Increase/(decrease) in trade and other payables 9,424 (80,740) 8,012 (106,063)Movement in related party balances (52,006) (20,104) (3,571) (34,592)Taxation paid (79,424) (121,110) (57,468) (106,484)Increase in deferred income 11,961 6,000 - -

Cash generated from operations 163,490 46,241 151,976 18,494

27. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVESThe company’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. The compa-ny’s aim is to achieve an appropriate balance between risk and return and minimize potential adverse effects on the company’s financial performance. The company’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems.

The company regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. The board of directors in conjunction with management identifies, evaluates and addresses financial risks in close cooperation with the company’s operating units. The most important types of risk for the company are credit, liquidity and market risk.



27. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (Continued)The company’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. The compa-ny’s aim is to achieve an appropriate balance between risk and return and minimize potential adverse effects on the company’s financial performance. The company’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems.

The company regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice. The board of directors in conjunction with management identifies, evaluates and addresses financial risks in close cooperation with the company’s operating units. The most important types of risk for the company are credit, liquidity and market risk.

a) Capital Risk Management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may limit the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt.

The capital structure of the Company consists of equity attributable to equity holders, comprising is-sued share capital and retained earnings. The Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrow-ings less cash and cash equivalents.

The constitution of capital managed by the Company is as shown below:Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

Ordinary Share capital 10,000 10,000 10,000 10,000Share premium 190,000 190,000 190,000 190,000Retained earnings 285,818 158,070 301,926 205,985

Equity 485,818 358,070 501,926 405,985



27. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (Continued)b) Credit risk management

Credit risk arises from cash and deposits with banks and financial institutions as well as credit expo-sures to customers, including outstanding receivables and committed transactions. Credit risk is the risk that counterparty will default on its contractual obligations resulting in financial loss to the Com-pany.

Management assesses the credit quality of each customer, taking into account its financial position, past experiences and other factors. Individual risk limits are set based on internal ratings in accord-ance with limits set by management. The utilisation of credit limits is regularly monitored.

The tables below detail the credit quality of the company’s financial assets as well as the company’s maximum exposure to credit risk by credit risk rating grade:

Company

31 December 2018 Note

Internal/ external

rating12 months or lifetime ECL

Gross carrying amountShs’000

Loss allowance

Shs’000

Net amountShs’000

Trade receivables 21 PerformingLifetime ECL

(simplified approach) 13,907 (13,109) 798Bank deposits 15 Various 12 months ECL 25,027 (266) 24,761Due from related parties-Current 18 Performing

Lifetime ECL (simplified approach) 72,370 - 72,370

Due from related parties-Non Current 18 Performing

Lifetime ECL (simplified approach) 116,112 (16,501) 99,611

Bank balances 15 Various 12 months ECL 28,657 - 28,657

256,073 (29,876) 226,197


Internal/ external

ratingIncurred loss

model (IAS 39)


Loss allowance

Shs’000

Net amountShs’000

Trade receivables 21 Performing Incurred loss model 11,940 (8,951) 2,989Bank deposits 15 NA Incurred loss model 4,310 - 4,310Due from related parties-Current 18 Performing Incurred loss model 45,180 - 45,180Due from related parties-Non Current 18 Performing Incurred loss model 102,958 - 102,958Bank balances 15 NA Incurred loss model 34,326 - 34,326

198,714 (8,951) 189,763



27. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (Continued)b) Credit risk management (continued)

Group


Internal/ external

rating12 months or lifetime ECL


Loss allowance

Shs’000

Net amountShs’000

Trade receivables 21 PerformingLifetime ECL

(simplified approach) 46,423 (40,707) 5,716Bank deposits 15 Various 12 months ECL 45,739 (479) 45,260Due from related parties-Current 18 Performing

Lifetime ECL (simplified approach) 92,177 - 92,177

Bank balances 15 Various 12 months ECL 44,732 - 44,732

229,071 (41,186) 187,885


Internal/ external

ratingIncurred loss

model (IAS 39)


Loss allowance

Shs’000

Net amountShs’000

Trade receivables 21 Performing Incurred loss model 45,595 (22,059) 23,536Bank deposits 15 NA Incurred loss model 18,894 - 18,894Due from related parties-Current 18 Performing Incurred loss model 63,090 - 63,090Bank balances 15 NA Incurred loss model 49,211 - 49,211

176,790 (22,059) 154,731

The bank balances are not restricted, whereas the bank deposits are restricted. They include deposits held with banks that have high credit ratings.

The customers under the fully performing category are paying their debts as they continue trading.The loss allowance represents the debt that is fully provided for in line with the expected credit loss model. Related parties balances have not been considered for impairment due to their revolving nature and the fact that related companies are on good balance sheet footing with no large external indebt-ness



27. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (Continued)b) Credit risk management (continued)

Trade receivables

An impairment analysis is performed at each reporting date using a provision matrix to measure ex-pected credit losses. The provision rates are based on days past due for various customer segments with similar loss patterns. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses.

The provision rates are based on days past due for various customer segments with similar loss pat-terns. The calculation reflects the probability-weighted outcome, the time value of money and rea-sonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

Set out below is the information about the credit risk exposure on the Company’s trade receivables and contract assets using a provision matrix:

Expected credit loss as at 31 December 2018

0-30 31-60 61-90 90-120 >121 TotalLoss rates 21% 49% 64% 99% 100%Total exposure - 899 945 - 12,065 13,907ECL allowance - 441 603 - 12,065 13,109

Loss RatesExpected credit loss as at 1 January 2018

0-30 31-60 61-90 90-120 >121 TotalLoss rates 21% 49% 64% 99% 100%Total exposure 1,352 336 1,364 - 9,426 12,478ECL allowance 284 165 873 - 9,426 10,748

Expected credit loss as at 31 December 2017The transition provisions of IFRS 9 allow an entity not to restate comparatives. The Company has elected not to restate comparatives in respect of the consequential amendments to IFRS 7 Financial Instruments: Disclosures. Accordingly, these amendments were applied to the disclosures for 2018 and the prior year balances were done and the adjustment effect reflected through the retained earn-ings of Sh. 6,907,353.

Credit risk – Increase/decrease of ECL rate by 10%.If the ECL rates on trade receivables had been 10% higher (lower) as of 31 December 2018, the loss allowance on trade receivables would have been Sh 293,804 higher (lower).



28. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (Continued)

Company

Nominal Value

Exposure at Default Amortized

Cost‘000

Loss given

Default StageOther

Rating12 Month

PDECL‘000

Bank Guarantee Speculative 1,450 30% Stage 1

Moody’s B2 3.44% 18

Bank Guarantees Speculative 2,930 30% Stage 1

Moody’s B2 3.44% 37


Moody’s B2 3.44% 211

25,026 266


Moody’s B2 3.44% 18


Moody’s B2 3.44% 37


Moody’s B2 3.44% 211


Moody’s B2 3.44% 16

Fixed Deposit Speculative 10,159 30% Stage 1

Moody’s B2 3.44% 105


Moody’s B2 3.44% 38

Fixed Deposit Speculative 222 30% Stage 1

Moody’s B2 3.44% 2

Fixed Deposit Speculative 5,054 30% Stage 1

Moody’s B2 3.44% 52

45,739 479


28. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (Continued)a) Interest rate risk

The group’s interest bearing assets are investments in short term deposits. All of these instruments are at fixed interest rates. The nature of financial instruments held, mitigates interest risk exposure of the Group. Fluctuations in interest rates will have an insignificant effect on the Group.

b) Liquidity risk

The amounts disclosed in the table below are the contracted undiscounted cash flows of the Group’s financial liabilities.

1-6monthsSh’000

6-12monthsSh’000

Over 12monthsSh’000

TotalSh’000

At 31 December 2018Due to related parties 8,478 - - 8,478Trade payables 53,976 - - 53,976

Total financial liabilities 62,454 - - 62,454

At 31 December 2017

Due to related parties 31,397 - - 31,397

Trade payables 65,852 - - 65,852

Total financial liabilities 97,249 - - 97,249



29. OPERATING LEASE COMMITMENTS

Operating lease commitments represent rentals payable for office space.CPF Financial Services Limited and its subsidiaries pays rental for office space. Operating lease rentals in the year (Group and company) amounted to Sh 30,381,675 (2017 – Sh 24,208,780).

At the end of the reporting period the commitments under operating leases fell due as follows

Group Company

2018Shs’000

2017Shs’000

2018Shs’000

2017Shs’000

Within one year 37,363 25,295 30,104 19,877Between two to five years 100,573 60,912 93,313 46,393

137,936 86,207 123,417 66,270

30. CAPITAL MANAGEMENT

The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the company consists of cash and cash equivalents and equity attributable to equity holders, comprising issued capital and revenue reserves.

Consistent with others in the industry, the company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents.

The Group had no borrowing as at 31 December 2018 (2017: nil).

31. FAIR VALUE

The Directors consider that there is no material difference between the fair value and the carrying value of the group’s financial assets and liabilities where fair value details have not been presented.

Notes to the Consolidated Financial Statements


32. CONTINGENT LIABILITIES

There were no contingent liabilities of the group as at 31 December 2018 (2017 - nil).

33. COUNTRY OF INCORPORATION

The company is domiciled and incorporated in Kenya under the Companies Act. The ultimate holding com-pany is Laptrust Registered Trustees, a company limited by guarantee that is incorporated in Kenya.

34. CURRENCY

These financial statements are presented in thousands of Kenya Shillings (Sh’000).

Notes to the Consolidated Financial Statements


Notes


CPF HOUSE 7TH FLOOR, HAILE SELASSIE AVENUE, P.O BOX 28938 - 00200 NAIROBIMOB: 0720 433 354, 0735 763 293, TEL: +254 2064 901-5 EMAIL: [email protected]

NAIROBI / MOMBASA / KISUMU / ELDORET / MERU / NAKURU / GARISSA / NYERI / BUNGOMA

creating sustainable value · cpf house, 7th floor haille sellasie avenue p o box 28938, 00200...

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